GBP/JPY declines below the 20-day SMA following BoE’s decision

• GBP/JPY declined for a second consecutive day, near the 181.00 area.
• As expected, BoE hiked rates by 25 bps but hinted at a possible pause.
• The BoJ carried out an unexpected bond-buying operation, pushing the 10-year yield to multi-year highs.

The GBP/JPY declined towards the 181.00 area on Thursday, mainly driven by the JPY’s strength amid the expectations of a potential Bank of Japan (BoJ) tweak. On the other hand, the GBP weakened against most of its rivals following the Bank of England’s (BoE) decision.

As anticipated,  the BoE increased the policy rate today by 25 bps, bringing the Bank Rate to 5.25%—two members for 50bp and one member voting for keeping the Bank Rate unchanged.

In the statement, the BoE acknowledged the potential risks of inflation increasing, especially concerning wage growth. Despite this, the bank pointed out that its current monetary policy is restrictive, and Andrew Bailey considered it is already having an “impact”. They also mentioned that they would maintain a sufficiently restrictive Bank Rate for a considerable duration to bring inflation back to the target of 2% in the medium term. This suggests that the BoE may prepare the financial markets for an upcoming pause or potential cuts.

Reacting to the decision, the British yields are seeing mixed movements. The 2-year rate declined to 4.93%, while the 5- and 10-year products stand at 4.44%, with the last one seeing more than a 1% increase.

On the other hand, the JPY is trading with gains against most of its rivals, mainly amid expectations of further tweaks on the Yield Control Curve (YCC) policy of the Bank of Japan (BoJ). On Thursday, the bank carried out an unexpected bond-buying operation, pushing the 10-year Japanese yield to a nine-year high of 0.65%. These movements hint at a potential monetary policy pivot. In the meantime, divergences in the financial policies between the BoE and BoJ should push the pair to the upside.

GBP/JPY levels to watch

The daily chart highlights a neutral to bearish technical outlook for GBP/JPY, indicating possible bullish exhaustion. The Relative Strength Index (RSI) maintains a negative slope above its midline, and the Moving Average Convergence Divergence (MACD) prints a red bar. However, the pair is below the 20-day Simple Moving Average (SMA) but above the 100 and 200-day SMAs, suggesting that the bears struggle to challenge the overall bullish trend.

Support levels: 179.85, 179.00, 178.00.
Resistance levels: 181.40 (20-day SMA), 182.00, 183.00.